After the cyclone: blending with grant finance for Fiji

In February 2016, Fiji’s largest island, Viti Levu, caught the full impact of Cyclone Winston. The cyclone took the lives of more than 40 Fijians, caused entire villages to be damaged beyond repair, and left thousands without water and power. Ultimately it cost the country the equivalent of 20% of its GDP.

Climate change poses an existential threat to the Pacific islands through rising sea levels and the increased frequency of extreme weather events such as Cyclone Winston. In Fiji, inadequate water systems that cannot withstand the effects of flooding are one critical source of vulnerability. At the same time, as the population of the capital, Suva, increases, investment is needed to ensure that safe drinking water and adequate sanitation are available for all.

The EIB is supporting the efforts of the government of Fiji with a loan of just under EUR 65m, alongside the Asian Development Bank (ADB) and the Green Climate Fund. The programme will install a new water intake on the Rewa river, further inland than the existing facilities, to reduce the risk of drawing in seawater. Along with a new water treatment plant, pumping station and reservoir, this will improve the quality and reliability of the drinking water supply.

In addition, the wastewater network and treatment system will be upgraded and expanded. Altogether, more than 300 000 people will benefit from these measures. A further 1 000 households in peri-urban areas and informal settlements will be connected to the water network, while an additional 4 500 households will be connected to the sewerage network.

With the government of Fiji only recently able to sell bonds with a four-year maturity, the 20-year loans from the EIB and the ADB are vital in enabling this project to go ahead. This is a project with high social and environmental returns but a low potential to be fully self-financing. Given the post-disaster situation, there is a clear case for the blending of grants with loans to achieve a lower cost of funding. Alongside a grant from the Green Climate Fund, the project will also therefore benefit from an interest rate subsidy from the Cotonou IF worth nearly 17% of the EIB loan amount.